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Market Analysis: Jun 12, 2009: Sue Martin, market analyst

posted on June 12, 2009


In its latest assessment of global supply and demand, USDA this week increased its estimate of world ending stocks of wheat. Consequently, prices trended lower.

For the week, July wheat lost nearly 40 cents, and the nearby corn contract was down 18 cents.

Tighter supplies of old crop soybeans sustained the rally in the soybean pits, where the July contract gained another 20 cents and the nearby meal contract was up more than $26 per ton.

In the softs, cotton moved back into positive territory as the December contract posted a gain of $1.65.

In livestock, August cattle were down 45 cents. Nearby feeders gained nearly $1. And the July lean hog contract traded sideways with a weekly gain of a penny.

In other markets of interest, the Euro advanced 50 basis points against the dollar. Crude oil gained more than $3.50 per barrel. Comex Gold was down nearly $22 per ounce. And the Goldman Sachs Commodity Index gained 14 points to close at 467.80.

Market Analysis: Jun 12, 2009:  Sue Martin, market analyst Pearson: Here now to lend us her insight on these and other trends one of our regular Market to Market analysts, Sue Martin. Sue, good to have you with us.

Martin:Thank you.

Pearson: Let's start off with what we talked about earlier in the show, that is the price of oil, $46.50 a year ago, up over $70.00 this market today. Are we headed for a strong oil move and another big commodity advance this spring?

Martin:Well, I think if we truly do have economies around the world stabilizing and starting to improve, such as China, India, Russia, Brazil, then I think crude oil deserves to go to at least a 38% retracement and that's a little over 76 cents. So, we're not far from that. I think on Friday we were around $72.20, $72.30, something like that. Crude came back after other markets closed, still closed lower for the day but did come back. I think that's where we're headed and it wouldn't surprise me if we see it this next week. I think that when I look at the crude oil market and I look at gasoline and the prices of gas have improved, which they probably needed to, it's helped improve profit lines for ethanol as well. I think that when I look at this market here at least it should get to $76, possibly if we can get through that it might lead us on up closer towards the 80 cent mark. But we've got to be careful, this next week is a very volatile week in my book, it's a week where we're going to really I think set down some decisions on are we really turned around in the stock market, are we going to improve? I fear we're not and I think that this next week if we see the stock market start to fail then maybe if the dollar continues to improve does that continue to help the crude? We might snack that 38% retracement.

Pearson: What do you think will happen with the stock market?

Martin:Well, I'm looking for the stock market, the Dow, to start to roll over. We've had a nice rally, a nice corrective rally and it's made everybody feel better and we've seen a nice improvement. But I fear we could have at least a 10% to 15% correction. If we do more than that then this market may be headed back towards the lows and we set a really good, strong benchmark at 666, that's kind of a mark of the beast on the Dow so I tend to think that a 10% to 15% correction I want to see that and then I want to see where we're going from there.

Pearson: Let's talk about reports this week in fundamentals WASDE came out this week, USDA we talked just a moment ago about a little bit bearish on the wheat, kind of friendly to corn and certainly old crop soybeans the sky is the limit here. Let's talk first about the wheat market, it seems like plenty of worldwide wheat supplies at this stage.

Martin:Well, at this time there is and I think that when the WASDE report came out it just sort of every day since the wheat market has fell. But we also have to remember wheat is in harvest, even though the yields may not be special it's in harvest and amongst the fact that we do have decent stocks at this time and demand may be not as robust as we'd really like, Egypt I think said today that they have about a six month supply of wheat on hand and they have been kind of dickering with Russia about quality and so that can be part of that excuse and they're even starting to do that on corn now. So, I think the wheat market we had an exact dollar break from the high of June 1st down to the low of Friday so we might catch here on this dollar break, give us a little bounce. I hate to sell it right at this moment, I think there's a bounce coming but I think the next rally is a corrective rally and you use that to make up some cash sales if you need to get old crop gone and maybe you do some new crop.

Pearson: So, pretty good there. Let's talk about the corn market, a little more bullish scenario than what was anticipated for corn after this, a lot of concerns, this 2009 crop we're talking about the great hybrids and we've got them but places in Illinois, Indiana and Ohio there's a lot of ponds still standing, there's not going to be as much corn growing there and where it is getting planted they are going for more of the shorter season hybrids and maybe some switches to soybeans. So, give us your thoughts on the corn market for 2009.

Martin:Well, I think for this year for the 2009 if we're looking at 2009-2010 I can build some bullish cases. In fact, it may be the bull market of next year. But right now we have a concern over the livestock industry and a liquidation that may be occurring in the pork sector especially and in the meantime we're having a liquidation of dairy cows so I think that that's going to take away some demand for corn but you also have the ethanol being a little more profitable and it's at the time of the year where ethanol competes with gasoline and I think that's helping the cause and because of the economy people are not flying more places, they are tending to travel so they might tend to drive so those are all pluses for the ethanol side of things. Also, our imports of ethanol are down and that's partly because of the fact that in Brazil their own mandates are going up and also you have a sugar industry that is going by way of bioenergy and therefore it is competing against acres for corn. I think that when I look at the corn market I'm very leery of it. We've tried to get through the January highs and we were able to just pinch through and that's all the better we could do. The market caught some heavy selling, some blame the dollar for it. I tend to think that you're at the time of the year planting is pretty much in all practical purposes done and I think yes we'll see some acres out of corn, I'm thinking a million and a half, some are talking two million, some of that will go into prevent plant, others into beans. I think that we have a corn market that is going to step back, we'll probably test on the July contract the $4.10 area but I would recommend if you get some movement back up around $4.35 to $4.40, $4.45 I probably would step up the pace and make some sales. I would use any rally you get this next week to move old crop cash. New crop if you want to wait on that a little bit, fine, we may still see some setback in that as we normally would in a year but the long-term there is a bull story building I think for new crop corn as we go into next year.

Pearson: And into 2010-2011.

Martin:Exactly.

Pearson: Sue, let's talk about the soybean market, a tale of two crops there, old crop the '08-'09 crop tight as it is and confirmed in the WASDE report and then you've got a new crop coming in that may not be as tight. So, what are you telling producers who are making decisions on soybeans?

Martin:Well, the thing we're at right now is we're watching this next week, I think this is a very important week coming up. This past week here we got up to just almost $13.00, $12.91. I think the market reacted to $13.00. In the meantime, you've got China slowing down their imports, the demand and they're also talking about releasing some reserves. So, that is kind of creating a little bit of a little uncomfort. We have to remember we started this major bull move with China's demand then it was Argentina's lack of crop or deterioration of their crop that finally gave the realization like we're going to be the market of choice for a while until Brazil got harvested. Well, they're harvested now and in the meantime they're running about 40 cents a bushel cheaper than we are FOB to FOB so they're going to probably elect to be the seller. And, of course, our prices broke today, dollar was up nice and they like to see the dollar improve but still when I look at the bean market I'm very suspect of it, I think if we get a rally up towards the highs of this week next week say we get up around $13.22, make sales of the old crop. In fact, I'd clean up old crop sales if you still have them, make some new crop.

Pearson: So, start making some new crop sales. Let's talk about the livestock side of this whole thing which has not been a good picture. You mentioned the pressure on hogs, liquidation occurring on the pork side, we've been trying to see a turnaround on the cattle business here for some time. What is your take for the balance of 2009 on fed cattle?

Martin:Well, I think the cattle market when you look at the contraction of meat not only in the U.S. but what we're seeing worldwide I think down the road we're looking, if these economies start to grow, remember we kind of got everybody spoiled into liking a better diet with protein, all of a sudden that is a pent up demand that's going to hit us full force and we're not going to have the numbers there to supply it. We're going to see some extremely high prices down the road. How long it takes, probably into the latter part of this year to get started. I think that, yes, we can maybe move around within a huge range on the August cattle, the basis has been narrowing like it should traditionally do in the month of June, it's possible we see the cash market go discount to the futures on the August contract by the end of June but I think that we have this next week some demand, grinder demand should be pretty good, you've got Father's Day coming up along with the 4th of July so that should be a little boost for some beef but I have to say that I'm a little concerned about the feeder market. There may be good demand for feeders but I have to tell you, you know, we broke from $103.80 down towards the $95 area, it's broken hard and fast, it needs to have a rally, you get up around $97.00, $97.50, $99 would be max and I think you sell it. I think the feeder market still may have to go down to around $92.50. That will tug on the futures of the fats at some point. But we're caught in this huge sideways range and we have been for a long time and if we can ever get up over $83.00, $83.50 on these August cattle maybe we can start to spur this thing on and get something better but right now we're just not seeing it.

Pearson: Dairy and poultry have been hit hard too. Pork in eighteen months lack of profitability, Sue, and just as we were starting to get the ducks in a row H1N1 hit, one problem after another. What is your take on this hog market? You mentioned liquidation, we've heard from a lot of producers who have said I'm done.

Martin:Well, there is and that's the sad part, again, because of the fact that boy if they can eak by I think it will be okay. I've noticed the last couple of days of this past week that bear spreads have kind of turned a little bit, in other words the premium that has been in those deferreds has been starting to let the air out a little bit. That could be a good sign. But we need demand for pork, we need our exports increasing and that's not happening and until that happens I fear this hog market is caught in trouble and it may still go lower before it actually does get better. Long-term I'm friendly to the hog market but you have Poland, the largest exporter of pork in the world, may end up being an importer. What does that say? It says our numbers are going to be really tight down the road but right now we're just in trouble.

Pearson: Sue Martin, thank you so much. That will wrap up this edition of Market to Market. If you'd like more information from Sue on where these markets just may be headed visit the Market Plus page at our Web site where you'll find streaming video of our program and you can download audio podcasts of our Market Analysis and Market Plus segments absolutely free at our Web site. Be sure to join us again next week when we'll examine a public school curriculum designed to teach children the importance of agriculture. Until then, thanks for watching. I'm Mark Pearson. Have a great week.

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